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IRS guidance for property owners seeking to prepay taxes before the end of 2017 has triggered a new round of confusion in some municipalities that had rushed to clarify their payment setups for frantic residents.
Friday is the last business day of the year for cities and towns to accept in-person payments, and some local officials report being deluged as residents seek clarification and advice about the federal tax law President Trump signed Dec. 22.
“Obviously this has been a time where a lot of people are scurrying for information and trying to react — time is very short,” said Geoff Beckwith, executive director of the Massachusetts Municipal Association. He said many places are reporting long lines of anxious taxpayers during the holiday period, when many local government offices are already short-staffed.
Beginning in 2018, taxpayers who itemize deductions on their federal returns cannot deduct more than $10,000 for state and local tax payments, meaning that residents of high-tax areas such as the Northeast will lose a substantial benefit.
After the tax law was signed, many taxpayers sought to prepay their 2018 property taxes, hoping to capture the tax break. Flooded with questions, some tax preparers suggested that their clients make the payments, and cities and towns told residents they would be able to accept the early checks.
Then, on Wednesday, the Internal Revenue Service issued a bulletin clarifying that taxpayers can claim deductions only on tax bills that have already been issued. Massachusetts municipalities operate on a fiscal year that begins July 1, so payments made on bills issued through the billing cycle that ends June 30 would qualify for the deduction, but not those for the remainder of 2018.
That forced some local officials to clarify their approach. The Town of Wellesley notified residents it would no longer accept advance payments for taxes that would be owed in the second half of calendar year 2018.
“To do so requires certain steps the Town must take for which there is not legally sufficient time,” Wellesley officials said in their announcement.
Wellesley said it would credit the accounts of residents who had made advance payments for the latter part of 2018.
The IRS statement triggered a round of explanations from local officials that underscore the differing, sometimes conflicting advice taxpayers are getting. Newton, for example, issued a notice Wednesday in which it referenced Wellesley’s earlier policy of accepting payments for all of 2018, suggesting that it, too, had received questions about accepting similar payments.
Newton’s chief financial officer clarified that the city would accept prepayments for the final two quarterly tax bills of the current fiscal year, and said that taxpayers can pay online. A spokesman for Mayor Setti Warren said the city had received “easily hundreds” more prepayments than is usual at this time of year.
Boston is letting residents prepay only the third-quarter tax bill, which is normally due Feb. 1. City officials said those payments will be accepted online; in person, before the end of Friday; or by mail, as long as the letter is postmarked by Dec. 31.
The Town of Wayland said it cannot accept prepayments electronically, “due to software limitations.” Officials advised residents to pay in person or at a drop-box in Town Hall, and warned against mailing checks because “state law prohibits us from honoring postmarks.”
A number of municipalities had made clear to residents before the IRS notice that they would not accept advance payments for taxes owed during the second half of calendar year 2018, since those taxes won’t be set until the new fiscal year assessment is confirmed.
“There’s really no change,” said Milton’s treasurer, James McAuliffe.
The situation was more chaotic in other states that had accepted prepayments even though they have not officially issued tax bills for all or parts of 2018.
In Virginia, some local governments that have not issued tax bills for 2018 now must set up reimbursement plans to return millions of dollars in prepayments, because they do not qualify for federal tax deductions.
Noting that Congress adopted the tax changes quickly, with no public hearings or detailed explanations, Beckwith said, “This is the example of the federal government taking action without seeming to really be interested what the actual impact is on taxpayers or on other levels of government.”
Complicating matters is that many homeowners have their property taxes paid by their mortgage lenders, from escrow accounts. JP Morgan Chase, Bank of America, and Wells Fargo on Thursday said they will prepay escrowed property taxes for mortgage customers who request that. But with 2017 nearly over, the banks suggested that those escrow customers prepay on their own and then notify their lenders.
Chase said it will reimburse the cost, if provided a receipt. Bank of America said its mortgage officers should be notified so that the bank doesn’t make a duplicate payment. Wells Fargo said that after it receives the next round of bills from municipalities, it will scan for early payments from customers and refund the surplus from escrow accounts.
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